EU Files WTO Complaint Against Argentina On Import Controls

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BRUSSELS -(Dow Jones)- The European Union Friday filed a complaint at the World Trade Organization challenging Argentina's import regulations, part of a plan to pressure President Cristina Kirchner on a range of policies that are angering the world's largest economies.

EU officials say Argentina's decision last month to nationalize oil and gas producer YPF SA (YPF), a unit of Spanish oil company Repsol YPF SA (REP.MC), was only the most recent in a series of moves by Kirchner's government that have harmed foreign investors and manufacturers.

Friday's complaint at the WTO, the Geneva-based arbiter of trade disputes, doesn't mention the nationalization of YPF, which doesn't violate WTO rules, two of the EU officials say. But the nationalization has convinced European officials that more forceful action is needed to fix the deteriorating economic relationship between Europe and Argentina.

"The trade and investment climate in Argentina is clearly getting worse," EU trade commissioner Karel De Gucht said in a statement Friday. "This leaves me no choice but to challenge Argentina's protectionist import regime."

The complaint, filed by the European Commission, the EU's executive arm, starts a lengthy process at the WTO. The first step calls for discussions between the EU and Argentina. If after 60 days the two sides can't reach agreement, the WTO puts together a panel of judges to hear their arguments. A ruling from the panel could take years; after that, both sides would have the chance to appeal.

If the EU ultimately wins, international trade rules would allow the bloc to impose tariffs on Argentine goods. That could be a powerful incentive for Buenos Aires: The 27 nations of the EU are Argentina's second-largest export market after Brazil. Argentine soybeans and other agricultural products make up the main component of this trade.

The complaint will challenge regulations and policies that the EU says close off the Argentine market to merchandise imports, the EU official said. Argentina requires importers to obtain from the government licenses that aren't automatically renewed, for products ranging from cars to electronics, a complicated process that the EU contends discourages companies from buying foreign-made products. Importers also must seek pre-approval from the Argentine government.

Argentina uses these procedures to scrutinize the foreign trading activities of importers and possibly pressure them not to import more than they export, the EU claims. The process is arbitrary and opaque, and appears to violate WTO rules, the commission said Friday.

In February, the commission said Argentina's system of import licensing cost European companies $147 million between January and September of last year. Roughly 12% of European exports to Argentina are covered under the country's non-automatic licensing scheme, the commission said.

Kirchner's government claims that firms voluntarily agree to limit their imports under the licensing scheme, though its trading partners are skeptical.

More broadly, Argentina says the international trade rules policed by the WTO, negotiated between its now-155 members over decades, are stacked against developing countries. Argentine Foreign Minister Hector Timerman, following a meeting on Thursday with WTO Director-General Pascal Lamy, said in a statement that more highly developed countries maintain protectionist practices in agriculture that "seriously damage the developing world," even as tariffs on industrial goods fall, to the benefit of wealthier nations.

Developing countries currently are facing "excessive pressure" to absorb goods produced by wealthier countries whose domestic markets are mired in slowdowns, the statement said.

In March, the EU, the U.S., Japan, Australia, Canada and 10 other nations delivered a sharply worded statement to the WTO criticizing Argentina's import-control policies.

"The import-restrictive measures and practices that Argentina has put in place are unbefitting any WTO Member, particularly a member of the G-20 who has committed to refrain from raising new barriers to trade and investment," that statement said.

Though the dispute over the YPF nationalization isn't addressed in the complaint, the EU hopes it will raise pressure on Argentina to revisit the nationalization. Spain, Repsol and Argentina are hashing out their dispute under the terms of a separate investment agreement between the two countries.

Spain and Repsol want more money from the Argentine government for the 51% stake it took in YPF. Repsol last week sued Argentina in the U.S. District Court for the Southern District of New York in Manhattan, a federal court, seeking to recover $10.5 billion from the Argentine government based on a total estimated value for YPF of about $18 billion.